Our global system has spun out of control. Here's how to rebalance it

Author:

Klaus Schwab, Founder and Executive Chairman, World Economic Forum

18.02/2019

The global system we are part of seems to be spinning out of control. Headlines around the world tell us something is amiss in many societies. I believe many of the developments we see today in individual countries and societies are part of an interconnected network of cause and effect. The entire global system is under stress. We must ensure it rebalances.

I believe this is possible, and I will outline below how I think this rebalancing can be achieved. But first let us consider the extent of the current global imbalances. There are four reasons why the system has spun as out of control as it has.

1. The unprecedented complexity of our global system

In a world of 7.7 billion people, it is no surprise that our global system is more complex than at any other time in history. In 1945, when the building blocks of the current global system were constructed, the world population was less than a third of what it is today. Similarly regarding the global economy, after World War II exports comprised a mere 5% of global GDP. Today, that percentage is roughly five times higher, even as global GDP has increased multifold as well.

2. The accelerating speed of change caused by the Fourth Industrial Revolution

The world is not just more complex, it is also changing ever faster. The Fourth Industrial Revolution has already introduced more new technologies than any of its predecessors, including artificial intelligence, the Internet of Things, autonomous vehicles and gene editing, among others. Moreover, the Fourth Industrial Revolution is powered by increasingly faster chips, and by an exponential rise in their computing power. All but a handful of organizations in Silicon Valley, Shenzhen and other tech hubs are falling behind in their ability to cope with this change.

3. An outdated steering mechanism for global governance

Confronted with this complex, fast-changing world, the steering mechanism for global governance created in the mid-20th century is quickly becoming outdated. The United Nations was created at a time when the People’s Republic of China - soon the world’s leading economy and already a major political power - did not yet exist. The Washington Consensus on how to achieve economic development is no longer valid in a world of automation and 3D printing. And to this day, no international organization has an actual estimate of the size of our digital economy.

4. Popular uprisings in many countries, driven by a broad-based popular urge to take back control of society

Seeing that even sovereign governments are caught off guard by the pace of technological change and are unable to cope with it, people around the world are revolting. Some direct their anger towards supranational organizations such as the European Union, others direct it towards foreigners and foreign nations, and still others revolt against other members of their own society. But many are also revolting against the political or economic system for either failing to produce widely held gains or for failing to address climate change. Almost all share one feeling: they want to take back control of a system that feels out of reach.

This is the overall state of the world in which we live today. But our global system is also a complex set of interdependent subsystems, and each of these subsystems is now out of balance too. Together, they are creating an explosive mix of threats to our future.

There are five subsystems that make up the global system: our ecological system; our economic system; our technological system; our social system; and our political system.

The ecological subsystem

This is arguably the most important of the five. Without a balanced global ecological system, none of the others can function at all. On global warming, the United Nations Intergovernmental Panel on Climate Change issued a dire warning in October 2018 that we have only 12 years left to prevent a global climate change catastrophe. Indeed, unless we drastically change course now, global temperatures will almost certainly rise by more than two degrees Celsius, and the consequences will be nearly impossible to reverse.

At the same time, we have come to realize that global warming itself is only one aspect of the Anthropocene. Our oceans, for example, are suffering in other ways too. At Davos in 2016, we were warned that there may be more plastic than fish in the oceans by 2050, if we continue to produce as much single-use plastic.

This year, primatologist Jane Goodall, documentary filmmaker Sir David Attenborough and World Wildlife Fund Executive Director Marco Lambertini warned of other irreparable harms that we are causing to our planet. This has given rise to the conviction that we need a New Deal for Nature as a whole.

The economic subsystem

The International Monetary Fund in January once again lowered its global economic growth forecast, to 3.5% in 2019 and only slightly higher in 2020. IMF Director Christine Lagarde warned that “the world economy is growing more slowly” just as “risks are rising”. This slowdown comes at a time when corporate debt levels in the United States and elsewhere are almost double what they were in 2007. Local government debt in China has risen dramatically as well, and Europe still hasn’t entirely recovered from its previous crisis. Clearly, we have little room to manoeuvre when the next recession hits.

Trade issues are generating additional economic concerns. For decades, trade helped fuel the greatest wealth increase the world has ever seen. But since a few years ago, trade has been tapering off as a percentage of global GDP. This is set to get worse as leading countries are turning to trade war as an economic policy tool. This is a dangerous gamble. In a complex global economic system, it is almost certain that trade restrictions will have unintended and negative consequences.

The technological subsystem

Connected technology is playing a more important role than ever before in our global system, yet it presents risks that are also greater than ever before. Our Global Risks Report 2019 indicated that alongside climate change and extreme weather events, one of the greatest causes for concern is large-scale cyberattacks and the breakdown of critical IT infrastructure and networks.

This looming cyber threat comes just as breakthrough technologies are affecting us to an ever-greater extent, and in ways with which we have not yet learned to cope. We have only seen the tip of the iceberg when it comes to artificial intelligence, for example. It will lead to the automation of many more tasks. It will also be able to predict many more things than it already can, owing to more abundant data collection. The next great power struggle for supremacy has already begun, and it is focused on AI.

For the use of data in AI to have positive outcomes, we must ensure that the data used is both diverse and properly obtained. On these fronts, enormous challenges are increasingly raising concerns around bias and privacy. Nations possessing large and diverse data sets, or those that create cross-border data flow protocols to create them, will be well positioned to take full advantage of machine learning. Nations with smaller populations and those with large populations but without the digital infrastructure to collect data via the Internet of Things risk falling even further behind in this race.

The social subsystem

Partly because of the technological progress of the Fourth Industrial Revolution, which puts great power in the hands of big tech companies, we once again live in a “winner-takes-all” society and economy. The power of these companies stands in deep contrast to the situation of a new “precariat” arising all over the world.

The plight of the “yellow vests” in France, of the “forgotten people” in America’s Midwest and Appalachia, and of the nationalist voters in Brazil, the Philippines and India may seem distinct at first glance. But the fact that they have all come to the fore in the space of a few years is no coincidence. Technology has left many people behind and has increased disparity, while opening a window to the world of its beneficiaries.

The global political system

From a world of two powers fighting for global dominance, by 1990 only one remained: the United States. That unipolar world, with the US as the leading political power and market capitalism as the leading economic concept, has come to an end. The new, multipolar and multiconceptual world that met at Davos 2019 is extremely fragile, as the rise of new powers leads to an inherently more hostile environment for the previous hegemony.

This brings me to the core question to be answered. How can we re-establish system control in a world that is out of balance on all these fronts?

I believe we can spawn a new era of prosperity and relative peace if we manage to put in place a normative framework for global system change. Executed properly, this framework can lead us from imbalance to balance, and from upheaval, nationalism and protectionism to a new era of globalization - Globalization 4.0. What would the norms for global system change look like? I propose the following seven.

First, a collaborative approach of global governance that is respectful of multipolarity and diversity. A new global system should be based on common interests. It should be founded on coordinated achievement of common objectives, rather than on cooperation to achieve a common strategy. The Paris Climate Agreement is a case in point. It agreed on “what” we want to achieve, but left sovereign nations free to decide “how” best to reach their country goals.

Second, the new global system should be more stakeholder-based. Countries have achieved the greatest progress when they have considered all their stakeholders: civil society, business, government, and individual citizens and groups. This has been true for the country I come from, Germany, and will remain true for all countries going forward.

Third, our system should be more sustainable. Already in the early 1970s, the Club of Rome warned us that one day, there would be limits to growth. They were mistaken about the short-term Malthusian aspect of those limits, but they were very right about the environmental aspect of our limits to growth. According to one estimate, in the last three decades, our global ecosystem has lost up to a quarter of the value it could potentially provide. We cannot let it degrade further.

Fourth, our system should be more inclusive. Individuals may be able to garner more wealth by blindly pursuing their own interests. But in the interest of society, we must make sure that no one gets left behind. In many societies, that may well mean a renewed focus on redistributive policies and taxation.

Fifth, our system should be more gender-balanced. For too long, we have lived in a world that has granted all kinds of privileges based on gender. The 21st century must be the one in which this changes, and in which women participate in politics and in business to the same or similar degree as their male counterparts. At our Annual Meeting, we remain committed to increasing the share of women’s participation year after year, as we did again this year.

Sixth, it should be more human-centric. That is not to say I believe that humans should wage war against robots, but rather that we are more powerful when we work in collaboration with them. When we evolve our global system, we must make sure that the primacy of people and their needs, as well as all species, take precedence over machines.

Lastly, our future global system should be more ethically based. It needs to stamp out distortions including corruption and various excesses. Elites need to be more trustworthy role models. In short, we need a re-moralization of globalization.

If we apply these norms consistently across the global subsystems I mentioned earlier, I believe we can shape Globalization 4.0 as a wave of globalization that will lead to a prosperity and stability more profound and more widely shared than ever before in history, including even the prosperity and stability which came about in the last great wave of global growth in the 1990s and 2000s.

Of course, to rebalance each subsystem, separate dialogues will need to take place. For example, in socio-economic systems, new rules will need to be agreed on fiscal policies. With rising inequality and “winner-takes-all”-driven industries, it will almost certainly be necessary to increase taxes on wealth and reduce those on labour, as well as to take anti-trust action to ensure that competition and choice are respected.

In the technological subsystem, we will have to agree on new rules for AI and gene editing, to make sure they are underpinned by the necessary ethical principles. And in the societal subsystem, we will need to move from a materialistic fixation to a more humanistic focus, particularly in ageing societies.

What do all the systemic changes I have described mean for the world as a whole? They confirm, most importantly, that no single actor has the capability to restore order in the global system. If ever the world was a unipolar world, that time is over. If ever there was a political system with absolute sovereignty, it no longer exists. We can turn our back on the digitally and environmentally connected world we live in today, but we cannot escape its reality. There are two ways of approaching this fact, one negative and the other constructive.

The negative approach would cause national leaders to focus solely on their national interests, on the understanding that preserving national social cohesion is the sole priority. Such an attitude however, would further disintegrate the global system.

The constructive approach to the new global reality suggests the global system can be reinforced and restored. Certainly, this cannot be done top-down as in the past, but rather by strengthening the elements of the system from the base. It will surely take multiple efforts to remodel these elements and to remove the distortions and imbalances among them.

As proof that this approach can work, let me share just a few of the key achievements from the World Economic Forum’s Annual Meeting 2019 in Davos:

- Multiple stakeholders announced their commitment to achieving a New Deal for Nature by 2020. The World Wildlife Fund, the International Chamber of Commerce, and several other stakeholders fully support this goal.

- A similar success was announced with respect to trade by the World Trade Organization. Several dozens of countries declared that they would start to craft rules for digital trade.

- The 2019 Annual Meeting saw a record number of concrete outcomes thanks to the multistakeholder and bottom-up systemic approach.

But progress needs to be made beyond Davos and beyond the global system too. So let me attempt to answer a final, crucial question. What does this systems theory of change mean for the leaders of countries and governments? In a fragile global system, we need to strengthen resilience by building a strong national subsystem that is able to absorb shocks. I see three main pillars for building resilient and future-ready national systems.

The first is that governments need to take a foresighted approach. The good news is that this is now possible. The abundance and availability of data and AI allows for a transformation from backward-looking analyses to predictive ones, and from reactive analyses to proactive ones. It is paramount that governments invest in tools that enable this, and that they learn to gather and process the available data in responsible ways.

An example of such a foresighted approach is the evolution of early warning systems for tsunamis. Until very recently, Stanford researchers said that such systems could only use pre-computed relations between earthquakes and tsunamis. Now, new methods allow for real-time estimates.

Moreover, new geological sensors can also more accurately predict everything from the probability of future seismic shocks in a specific area, to the chances of that area being flooded. These kinds of technologies can help governments decide where to build critical infrastructure or where to allow houses to be built.

The second pillar for building resilient national systems is achieved by bundling resources. Too often, government institutions still work in silos, whether within countries or across nations. By bundling resources and linking smart systems, governments can reduce system complexity and strengthen the agility and resilience of their national systems.

The final pillar for governments should be constant exploration, adaptation, and scaling up. We have pioneered this governance approach at our World Economic Forum Centres for the Fourth Industrial Revolution across the world.

The approach we suggest to governments is to test technology policies through fast prototyping and testing in a limited environment. Technology is changing quickly, and so should governments.

The world we live in today is troubled by a global system imbalance. If we don’t address it soon, it will surely lead to more problems down the road, and our ability to rebalance the system will lessen. But it need not be this way.

Equipped with the right principles, and with an understanding of the complexity of each subsystem, we can steer the world towards an unprecedented era of global and shared prosperity. Let us make sure that Globalization 4.0 will be the best yet.